CHICAGO - The Curators of the University of Missouri will enter the market on Thursday with a $350 million sale that includes $275 million of taxable Build America Bonds to fund projects at its various campuses and projects at its health system, including a new patient tower.
JPMorgan is the book-running senior manager. Morgan Stanley is also underwriting the transaction. Donald Estell is the university's financial adviser and Thompson Coburn LLP is bond counsel.
The finance team tentatively expects to sell $275 million of BABs and $75 million of tax-exempt bonds. The BABs will include a make-whole call provision, according to a member of the finance team.
Ahead of the sale, Standard & Poor's affirmed the Columbia-based university's AA rating on its system facilities revenue bonds. Moody's Investors Service affirmed its Aa2. The university has $1.3 billion of system facilities debt outstanding.
The debt is secured by a first lien on pledged revenues that come from auxiliary activities, student fees, a portion of tuition and fees, and from the health care system. Pledged revenues totaled $940 million in fiscal 2008, according to the offering statement for the bonds.
Proceeds will finance various projects at its four campuses, including an energy management project and a student union, and will fund significant investments in its health system. A portion will help finance a new $200 million patient tower, an expansion of surgical services, and the relocation of the Children's Hospital.
The university serves 51,000 full-time students, up nearly 12% from 2003 levels. It is the only public institution in Missouri that grants professional and doctoral degrees. It enjoys a prominent research role with more than $200 million in grant funding in fiscal 2008.
The university's credit is supported by a large financial resource base of $1.9 billion as of fiscal 2009, including more than $900 million in unrestricted assets and positive operating margins. The university's revenue base is diverse, coming from student charges, state operating aid, health care revenues, and other grants and contracts, according to Moody's report.
Investment income has fallen. The system's endowment stood at $739 million at the end of March, after suffering a 4.8% decline in fiscal 2008 and an estimated $18.2% decline in fiscal 2009.
State support was cut in fiscal 2002 and had just begun to exceed its 2001 levels in fiscal 2009. The university has taken measures such as salary and hiring freezes to improve its financial stability.
"We expect that the system's financial resource levels will remain strong and operating performance will remain positive, providing sound coverage of increased debt-service responsibilities," Moody's wrote.
Other challenges include an increasing debt load and the difficulties of managing a complex heath care system that includes multiple hospitals and a large faculty practice of more than 400 physicians. Volume levels were down across the health system in fiscal 2009.
Health care revenues account for 30% of the university's operating revenues. The system includes the 307-bed University Hospital and Clinics, the 116-bed Columbia Regional Hospital, and several other psychiatric centers and the physicians group.
As the university accelerates its capital spending in some areas, it has postponed renovations planned at an academic building on its St. Louis campus because of the state's suspension of $28 million in capital.
In addition, its Ellis Fischel Cancer Center won't be fully completed because the state pulled $31 million in aid. Gov. Jay Nixon vetoed the funding in the fiscal 2010 budget.
The university stood to benefit significantly from a $700 million building program pushed by some lawmakers during their spring session, but the plan never made it to Nixon's desk.
The governor did recently write to lawmakers urging their support for a bond-funded building program to be announced at a later date.